The following is meant to give a general
overview of the legal landscape in Canada and the USA as pertaining to the issue of plan sponsor liability associated with offering investment advice to members of Defined Contribution plans. These comments have been
gathered for your convenience only, and in no manner are meant to construe a legal opinion. We strongly advise all our clients to seek their own legal counsel on this issue.
The "prudent person"
requirement of Canadian pension legislation, Canadian common law as pertaining to fiduciary responsibilities, and the U.S. guidelines pertaining to the Employee Retirement Income Security Act (ERISA) provide the
guidance that Canadian plan sponsors should consider when offering investment advice.
THE CANADIAN EXPERIENCE
The litmus test for plan sponsors in satisfying Canadian legislation, both the
"prudent person" requirement of the pension statutes and the common law of fiduciaries, is all about "process not performance". A disgruntled employee pointing to high performing investment funds that are not part of
your plan's offering will not get far as long as you can provide good evidence that the employee received well founded, properly explained and professional advice.
THE U.S. EXPERIENCE
Two years ago the U.S. Department of Labor made it legal for plan sponsors
to offer investment advice to their employees. In Interpretive Bulletin 96-1, the Department indicated that the designation of a person to provide
investment advice to participants would not, in itself, give rise to fiduciary liability or loss. However, as with the selection of any service provider, the
plan sponsor is responsible for the prudent selection and monitoring of the designated advisor.
One of ERISA's most fundamental principles is that a fiduciary cannot deal with plan assets in
its own interests.